Can a low-carbon Germany retain its position as Europe’s powerhouse economy?

Germany seems to be facing increasing tensions between maintaining its economic engine and living up to its committed low-carbon energy future – says Andrew Fishbein

In March 2011, the Daiichi nuclear power station in Fukushima was inundated by a tidal wave brought on by an earthquake – causing a nuclear meltdown that sent radiation into the surrounding area and ocean. To many around the world, especially in Germany, this disaster in Japan punctuated both the urgency and complexity of our shared global climate and energy problems. Can humanity de-carbonise its fundamental economic activities in a way that is affordable and resilient? Do we have to make a choice between our current industrial paradigm and our responsibility to future generations?

Following Fukushima, Germany decided to double down on its aggressive Energiewende, or energy transition, by phasing out all its nuclear power in a decade while continually accelerating renewable energy development. In doing this, German Chancellor Angela Merkel reversed the 2009 deal between her own centre-right Christian Democratic Union and the free-market Free Democratic Party – which extended the operation of Germany’s nuclear power fleet for another decade, ostensibly to address rising energy prices.

Some observers viewed Germany’s response to Fukushima as a foolhardy knee-jerk reaction but opposition to nuclear power in the context of environmentalism has deep roots in German society. The anti-nuclear and social justice movement of the 1970s grew into Alliance ‘90/The Greens party, whose coalition with the centre-left Social Democratic Party codified the country’s nuclear exit in 2000, to be achieved by about 2022.

Concern for the natural environment is shared across German society, a value enshrined in mainstream culture and philosophy. It has given that country’s leaders a solid mandate to pursue the most aggressive campaign of de-carbonization of any country in the world. The Energiewende signifies a wholesale transformation of Germany’s energy sector in order to directly address anthropogenic – human-caused – climate change. The transition involves aggressively supporting the development of 25 gigawatts of renewable energy to replace its entire 21 GW nuclear capacity by 2022, bringing renewables to 80 per cent of all electricity generation by 2050. Great progress has been made, and 2013 saw renewables hit 23 per cent of total electricity generation in Germany but practical and political challenges remain.

German consumers already pay a hefty renewable energy surcharge, to the tune of more than $0.08 per kilowatt-hour, a charge that has risen almost 20 per cent since 2012 to help cover the rising costs of expensive offshore wind and other renewable energy development. Average households pay about $0.40/kWh for their electricity – for comparison, the average retail price of electricity in the United States was around $0.10/kWh in 2012. Meanwhile, the manufacturing industries at the heart of Germany’s export-driven economy enjoy exemptions from paying these fees, a practice that the European Commission says unfairly benefits German industry and violates competition rules.

To make matters potentially worse for Germany, the European Union Court of Justice is poised to shake the foundations of national renewable energy policies that appear to violate EU law, which prohibits discrimination against foreign goods within the union. If the court finds in the favour of two companies that were refused renewable energy credits for electricity sold in neighbouring countries, EU countries may have to adjust the legal bases of their renewable energy policies to allow for more competition. Germany’s own generous subsidy system could be opened to foreign energy companies, adding to its already large annual burden of $16 billion to support renewables. This is to say nothing of the cost of upgrading critical electricity system infrastructure, which is increasingly necessary as the somewhat unpredictable renewable resources such as wind and solar increase their market share.

Moreover, forthcoming efforts under the 2009 EU Energy Market directive will start to merge European electricity markets with the goal of a unified market to include renewable electricity. Although discord between various national interests on the forthcoming EU 2030 climate and energy framework is hampering a cohesive EU policy, Brussels has made clear its preference for a unified energy and climate policy governed by the EU, not the member states.

Amid concerns about the rising costs of its renewables policy, which will be complicated by EU energy policy harmonization, Germany seems to be facing increasing tensions between maintaining its economic engine and living up to its committed low-carbon energy future. Despite the challenges, Germany is pressing on. Even the current CDU-SPD grand coalition, which unites competitiveness-minded industry and labour, seems neither willing nor able to reverse the tide of the Energiewende.

Germany has placed its bet, reckoning that the only rational path forward is to transform its energy system in order to help protect the Earth’s climate and cement the new cornerstone of a modern competitive economy. As events unfold over the coming months and years, the results of the Energiewende could have a significant impact on the willingness of other countries to seriously consider radically changing their energy systems. The rest of the world has yet to commit itself to transformational change toward a low-carbon future. It remains to be seen what this will mean for Energiewende. Will anyone else take the gamble?

Andrew Fishbein is senior programme officer for congressional affairs at the German Marshall Fund of the United States think-tank in Washington DC. The GMFUS first published this article as part of its Transatlantic Take series: Taking the energy gamble